A homecoming for US manufacturing? Why a resurgence in US manufacturing may be the next big bet

September 2012

At a glance

The manufacturing sector in the US is rebounding. Factors that could impact reshoring decisions include labor, materials, transportation/energy costs, market demand, the availability of talent and capital, tax rates, and currency fluctuations.

The manufacturing sector in the US is rebounding. Is this a cyclical recovery or could it be an indication of a more sustained one? PwC looks at possible structural changes in seven key areas that could lead to a sustained recovery and help reverse the offshoring of R&D and production in the manufacturing sector.

The key factors that could impact reshoring decisions include labor, materials, transportation/energy costs, market demand, the availability of talent and capital, tax rates, and currency fluctuations.

Click on the images below to explore US manufacturing attractiveness and a comparative view of US manufacturing.

Summary of manufacturing attractiveness

More Attractive

Less attractive

Currency fluctuations: The US dollar depreciated during the last decade, helping to make the US a potentially lower cost location for exports to other countries. This is contributing to strong growth in the exports of goods since the end of the recession.

Transportation and energy costs: The bull market in energy commodities over the last decade has raised transportation costs for manufacturers with global supply chains, making local production attractive. Technical improvements in natural gas extraction from shale in the US have also created new investment opportunities for manufacturers across several industries and greater downstream demand from increased drilling.

Labor costs: Higher labor costs in emerging economies, especially China, are challenging profitability for some industrial manufacturers. However, the cost premium, based upon the difference in absolute wages between the US and China has continued to expand, making it likely that labor arbitrage involving China and other low labor cost emerging markets will persist.

US market demand: While China and other emerging markets are forecast to grow GDP faster than the US, the disparity in wealth as measured by real GDP per capita is expected to persist, with the US dwarfing China and other emerging markets. This difference in the relative standard of living and the size of the US market supports investment in new domestic production of goods targeted for US consumption.

Talent: The gap in the level of higher education and training between the US and China has narrowed, though the US still holds a significant advantage. The US workforce will likely remain competitive for the foreseeable future owing to institutional advantages in education and experience.

Availability of capital: Commercial and industrial lending demand has recovered and credit standards have re-adjusted from extreme levels reached during the financial crisis. Evidence also exists that borrowing in China has become more difficult due to increased capital requirements for banks and tighter lending rules for exporters.

Tax and regulatory environment: China and the rest of the world appear to have grown more competitive from a tax standpoint.